Mortgage calculations

[elloyellow]

Is anyone possibly able to help me work out how much I would have to pay per month to pay off my mortgage in x years?

It is an interest only mortgage.

I borrowed a little over £280,000 and have made a couple of overpayments.

Current monthly payments are £1,071.39 at 4.6%

Plan is to overpay when I can.

But out of interest, can I work out a monthly overpayment to aim for which would help me pay off the mortgage in 29/25/30/35 years?

Is there a simple calculator anyone could recommend? Or does anyone fancy doing the maths?!

Thank you in anticipation

Money saving expert. Com has exactly the calculator you need.

Thank you - that was a simple fix! Sorted

If it's an interest-only mortgage, what do you mean by "pay it off"? You don't "pay off" an interest-only mortgage, you merely pay the... interest. You will still owe the full capital sum at the end of the mortgage. To "pay that off", you have to either sell the property to pay off the capital (hoping that the sale value of the property is equal to or greater than the sum you borrowed) or have an alternative investment plan running alongside that will have earned you the capital sum, £280,000 in this case, which you can then use to pay off the capital when your mortgage deal reaches its end.

I just ran the figures and borrowing £280,000 over 25 years (I guessed) interest-only at 4.6% does indeed give you monthly repayments of about £1070, but you won't have paid off your mortgage at the end of that period. You'll still owe your lender £280,000 in 25 years' time.

So not sure what you mean, basically - have I misunderstood? You can overpay on an interest-only mortgage but it'll generally just reduce the interest you pay over the rest of the term - it won't increase your equity in the property. Or are you hoping to overpay to reduce the capital sum, by special arrangement with your lender? If so that is a complex arrangement, and I'm not sure the usual mortgage overpayment calculators will help unpack it.

To pay off an interest only mortgage you need to pay the interest and the capital on top.

So the average extra monthly amount is 280 000/(X x 12) where X is the number of years you want to pay off over.

So its a good target to aim for but it's not quite that simple as the interest will reduce as the balance reduces but the interest will also fluctuate with any rate changes.

You could also consider saving lump sums or regular amounts in higher paying products to pay off later, eg you can get 6% fixes so this will make a small profit. It might also be worth putting some in a S&S ISA to pay down in 10 or more years time but that opens you up to investment risk.

@BarbaraofSeville Yes - ultimately if the OP wants a mortgage that they pay off, I wonder why they didn't choose a repayment mortgage rather than an interest-only one!

Many interest only mortgages only allow you to pay back 10% capital per year whilst in a fixed rate period. Have you checked that? If you have borrowed £280,000 in year one you can pay £28k. Then you owe £252,000 so in year two you can pay £25,200 and so on because it is the 10% of the balance you can pay unless paying in full or outside the fixed rate.

If you can afford to repay that much a year I am unsure why you went for an interest only rather than a repayment mortgage.

It's really very simple. If it's an interest-only mortgage then your mortgage payments are just the interest and the capital borrowed remains the same. Your overpayments simply have to total £280,000 before you clear the debt.

To pay that amount off over 25 years would require overpayments of £933 per month. Over 30 years it's £777. Over 35 years it's £666.

If you don't make overpayments the monthly interest charges remain broardly the same although going up and down with interest rate changes (presumably you get a fixed rate deal every few years rather than being on a variable rate). If you make overpayments then the interest charges will gradually get less, making overpayments easier.

There was a recent case (can't find it) where the homeowners didn't understand the implications of an interest only mortgage and thought they were paying off their loans after 25 years.

Interest-only mortgages are effectively the same as renting,but your landlord is the bank and you carry all the responsibility for repairs, maintenance and risk (which is why it is cheaper than renting)

Hi thanks all,

So loosely if I pay £1000.00 straight to the bank would my mortgage come down to £279,000 and then the monthly payments also reduce?

I have made some overpayments already; the payments were around £1078 and now they are £1071.39. So presumably this means the balance is reducing as the interest is lower.

I do understand the premise of an interest only mortgage and had my reasons for choosing it. Basically it gave me some breathing room to pay the interest only, securing the property, and then pay extra where possible. I don't envisage being in a position to pay the full 10% a year so that's not a problem. If it is then I can save it elsewhere and overpay at the end of the fixed term.

I don't have an online mortgage account so will ring the bank this week to confirm if my payments come directly off the balance.

Yes I have felt like I am practically renting off the bank 😂

But I'm so chuffed to have secured the property I have and this was only doable for me financially with an interest only mortgage.

This is why I was asking for help, a year on, now that my finances are a little different to see the best way to eat into the capital of the mortgage too.

@elloyellow Definitely worth speaking to your bank to make sure you aren't simply saving on interest payments rather than paying off capital as you wish to do. It may not work that way automatically, and every lender and product works differently. Good luck!

If the mortgage is interest only all extra payments will come off the balance, it's not possible that it wouldn't.

My advice if you can afford it is to pay £1200 a month then periodically more when you can afford it, as the capital is repaid, each month more of that 1200 is paying it off rather than servicing the debt. My mortgage (repayment) was paid off 5 years early this way

I think you need to speak to the bank. Sounds like an IO mortgage suited you at the time but I don't think you can now decide to essentially change the terms and put extra into Capital, I could be wrong.

"If you are overpaying on an interest-only mortgage, all your payments go on your mortgage interest. In this case, if you want to make overpayments, you will need to discuss the options with your lender".

An update after speaking to the bank:

I can make overpayments with a minimum of £250 a month and no more than 10% of the outstanding balance in a year.

So unfortunately I cannot round up to £1200 as a poster suggested, which would have been useful. As this will be less than the £250 and to change to a capital repayment mortgage would be a different product.

However, the overpayments will come directly off the balance outstanding. The interest will then be adjusted straight away.

So my plan is to save what I can each month and make overpayments as and when. I probably cannot stretch to the £250 additional a month, but might accrue this over two months. I know I will be disciplined to do it as and when l can.

Thank you for everyone's input and chatting it through.

That should say with a minimum of £250 a time not a month

Oh, this is interesting - I didn't know you could pay any capital from an interest only mortgage.

Good luck OP.

Thank you @GeneCity glad to have the luck!